Brand valuation

Brand valuation is the job of estimating the total nan-cial value of the brand. Like the valuation of any product,of self review, or conicts of interest if those that valuethe brand also were involved in its creation.[1] The ISO10668 standard sets out the appropriate process of valu-ing brands, and sets out six key requirements:

1. transparency,

2. validity,

3. reliability,

4. suciency,

5. objectivity, and

6. nancial, behavioural, and legal parameters.

Brand valuation is distinguished from brand equity.

1 Brand valueTraditional marketing methods have examined theprice/value relationship in terms of dollars paid. Somemarketers believe customers perceive value to mean thelowest price. While this may be true for commodities,some branding techniques are moving beyond thisevaluation.[2]

Brand valuation emerged in the 1980s.[3][4] Early rmsinvolved in providing brand valuations included Britishbranding agency, Interbrand led by Michael Birkin,[5]who is credited with leading development of theconcept[6] and laid out a brand earnings multiple modelof brand valuation in the 1991 book UnderstandingBrands.[7][8][9]

2 Valuation methodologiesThere are three main types of brand valuationmethods:[10]

2.1 The cost approachIn real estate appraisal, the cost approach is one of threebasic valuationmethods.[1] The others aremarket, or salecomparison, and income. The fundamental premise of

the cost approach is that a potential user of real estatewon't, or shouldn't, pay more for a property than it wouldcost to build an equivalent. The cost of construction mi-nus depreciation, plus land, therefore is a limit, or at leasta metric, of market value.

2.2 The market approachIn this approach a comparison with the market is done.For example if a person wish to buy a property in placeA, it is quite likely that the price of neighborhood wouldbe checked before arriving at conclusion on the existingproperty, leading to an approach based on the market.This valuation method relies on the estimation of valuebased on similar market transactions (e.g. similar licenseagreements) of comparable brand rights. Given that of-ten the asset under valuation is unique, the comparisonis performed in terms of utility, technological specicityand property, having also in consideration the perceptionof the asset by the market. Data on comparable or similartransactions may be accessed in the following sources:

1. Company annual reports.2. Specialized royalty rate databases and publications.3. In court decisions concerning damages.

2.3 The income approachThis approach measures the value by reference to thepresent value of the economic benets received over therest of the useful life of the brand. There are six recog-nised methods of the income approach.

1. Price premium method estimates the value of abrand by the price premium it generates when com-pared to a similar but unbranded product or service.This must take into account the volume premiummethod.

2. Volume premiummethod estimates the value ofa brand by the volume premium it generates whencompared to a similar but unbranded product or ser-vice. This must take into account the price premiummethod.

3. Income split method this values the brand asthe present value portion of the economic prot at-tributable to the brand over the rest of its useful life.

1

2 4 REFERENCES

This has problems in that prots can sometimes benegative, leading to unrealistic brand value, and alsothat prots can be manipulated so may misrepresentbrand value. This method uses qualitative measuresto decide the portion of economic prots to be ac-credited to the brand.

4. Multi-period excess earnings method thismethod requires a valuation of each group of intan-gible assets to calculate the cost of capital of each.The returns for each of these are deducted fromthe present value of future cash ows and when allother assets have been accounted for, the remainingis used as the value of the brand.

5. Incremental cash ow method Identies the ex-tra cash ow in a branded business when comparedto an unbranded, and comparable, business. How-ever it is rare to nd conditions for this method tobe used since nding similar unbranded companiescan be dicult.

6. Royalty relief method Assume theoretically acompany does not own the brand it operates under,but instead licenses the use from another. The roy-alty relief method uses available data of similar ar-rangements in the industry and assigns the value ofthe brand as the present value of future royalty pay-ments.

3 Uses of brand valuationCommon purposes are:

value reporting

licensing

dispute resolution

legal transaction

accounting

strategic planning

management information

taxation planning and compliance

liquidation

litigation support

Investors presentation/ Shareholders report

Raising funds

4 References[1] Campaign for Independent Brand Valuation

[2] Knapp, Duane E. (2000). The Brand Mindset. New York:McGraw Hill. pp. 2435. ISBN 0-07-134795-X.

[3] Georey Foster (1 October 1989). Theres No Account-ing for Brands. Management Today.

[4] Tatiana Soto J. (April 2008). Methods for Assessing BrandValue: A Comparison Between the Interbrand Model andthe Bbdos Brand Equity EvaluatorModel. Diplomica Ver-lag. pp. 14. ISBN 978-3-8366-5872-0.

[5] Heather Farmbrough (16 July 1987). Birkins Brand ofAmbition. Financial Times.

[6] Frank Zeccola (9 September 2009). New BrandingTrends to Watch: Former Omnicom Vice-Chief BirkinSays PR Trumps Others in Driving Brand Value, Pointsto Mobile and Experiential Marketing as Future Focus.Bulldog Reporter. Retrieved 16 March 2015.

[7] Debjoy Sengupta (23 May 2003). Infosys Brand ValueUp 3.18% In Fy03. Business Standard. Retrieved 6April2015.

[8] Chuck Pettis (2001). TechnoBrands: How to Createand Use ?Brand Identity? to Market, Advertise andSell Technology Products. iUniverse. p. 211. ISBN9781462099573. Retrieved 6 April 2015.

[9] Boersma, J.M. and Van Weelden (1991). UnderstandingBrands. London: Kogan Page. p. 80.

[10] ISO 10668 and brand valuations: a summary | BVRs IPManagement & Valuation Wire

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Brand value Valuation methodologiesThe cost approachThe market approachThe income approach

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